If you asked most Australians what drives their power bills, they’d probably point to generation — the cost of producing electricity. But the truth lies much deeper. Like an iceberg, only a small portion of our energy costs are visible above the surface. Beneath the waterline sits the much larger, hidden mass of network costs — the billions we spend on transmission and distribution infrastructure.
For years, the industry has treated this as an inevitable cost of decarbonisation. But it’s not. It’s the result of how we regulate and reward our networks.
The Hidden Incentive: RAB and the Capital Bias
At the heart of the problem is the Regulatory Asset Base (RAB) model — a relic of an earlier era when electricity networks were monopoly utilities building poles and wires to serve predictable demand. Under this model, transmission and distribution companies earn a guaranteed return on the size of their asset base. The more they build, the more they earn.
This creates a quiet but powerful incentive: build more capital-intensive assets, even when cheaper, more flexible options exist.
That’s why, even as the market cries out for agility and efficiency, we’re still seeing the rollout of multi-hundred-million-dollar synchronous condensers — machines that provide system strength but no energy — instead of leveraging technologies like grid-forming batteries or clutched gas turbines that could deliver the same services while also supporting the market.
These investments are buried beneath regulatory language and cost-recovery schedules, invisible to the public. Yet they now account for over half of the average electricity bill.
The Missed Opportunity: Markets Beat Monopolies
When we look at other parts of the energy system, the story is different. The wholesale and retail portions within the energy market are an open market with full competition.
Take batteries in the FCAS market. When AEMO opened frequency control services to competition, private investment flooded in. Batteries like Hornsdale and Wandoan showed that fast, merchant-driven solutions could not only outperform legacy assets but drive prices down dramatically.
That’s what happens when markets are allowed to do their job: innovation accelerates, costs fall, and the system becomes more resilient.
The same logic should apply to system strength and inertia, which remain locked inside the regulated world of transmission planning. These aren’t exotic engineering challenges — they’re service needs that can be met by many technologies, from grid-forming inverters to retrofitted gas turbines. We just need to let them compete.
A Hybrid-Cost Future
Instead of clinging to the RAB, it’s time to adopt a hybrid-cost framework — one that blends the best of regulation and competition.
Under this model, assets that provide both energy and network services could recover part of their cost from the market (through energy or capacity revenue) and part from system service contracts.
This approach would:
- Reduce the total cost to consumers,
- Accelerate deployment of flexible technologies, and
- Align incentives with performance, not asset growth.
In effect, we’d be replacing the “build more” mindset with a “deliver more value” mindset.
Lessons from Abroad
Other countries have already started this journey.
In the UK, Ofgem’s RIIO framework rewards networks for outcomes — not just capex — and applies “TOTEX” incentives to treat operational and capital expenditure equally. Meanwhile, competitive tendering models like OFTO for offshore transmission have proven that private capital can deliver regulated services at lower cost when the rules encourage it.
Even the UK’s Stability Pathfinder program is now procuring inertia and fault level from the market — letting batteries, clutched turbines, and syncons all compete on price and performance. The result: faster delivery, lower cost, and a more resilient grid.
Seeing Beneath the Iceberg
Australia’s energy transition is often framed as a generation problem — how fast we can build renewables or retire coal. But in truth, the biggest cost risk sits below the surface, locked inside the structure of how we fund and regulate our networks.
Until we reform the RAB and open these hidden layers of the system to competition, we’ll keep paying more than we need to. The iceberg will keep growing underwater — unseen, but heavy on every electricity bill.
If we want the cheapest, fastest, and most resilient energy transition possible, we need to start seeing beneath the iceberg — and redesigning the system so that value, not capex, drives investment.
Disclaimer: The views expressed in this post are my own and do not represent the views of my employer or any organisation I am affiliated with. This work is independent and intended to contribute to public discussion on policy and systems design.
